Capital Gains Tax Reform in Cyprus - Full CGT Exemption for Antiparochi Arrangements
Cyprus has made an important move in its capital gains tax regulation, which is expected to boost the island's property market. This significant move is in the context of the longstanding antiparochi land exchanges.
Qualifying antiparochi schemes will also enjoy full exemption from Capital Gains Tax, which is now set at 20%, as long as the conditions are met.
Such a change directly affects landowners or developers working together in joint projects to develop land and is likely to spark construction activity on the island.
What Is Antiparochi
Antiparochi is a commonly used development tool within the Cypriot market and other Med markets. Rather than selling the land outright and receiving a cash payment, the landowner sells the land to a developer in exchange for units within the completed building.
This model permits:
Landowners to unlock the value in their land without having to invest capital
Developers to acquire land without any immediate cash outlays
What Has Changed?
Previously, the use of an antiparochi could result in an individual facing Capital Gains Tax during the transfer of their land ownership.
Under the new law:
Antiparochi property exchanges are fully exempt from CGT
The currently applicable 20% rate of CGT is no longer applicable.
Such a move would remove a major tax consideration that dissuades land owners from engaging in partnerships.
Key Conditions for the Exemption to Apply
In order to obtain such exemption, the following conditions need to be met:
The transaction must involve a genuine Antiparochi arrangement, i.e., property-for-property transaction.
THE LANDOWNER WILL ACCEPT COMPLETED UNITS, NOT DELIVER CASH
Construction should be completed within five (5) years after the date of the transference of the land.
If the development is not completed within the five years, the exemption will lapse, resulting in the payment of Capital Gains Tax.
—This requirement is to prevent speculative transfer of land and to ensure proper development activity.
Why this reform matters
It is anticipated that the CGT exemption will:
- Encourage development on less utilized land.
- Reduce friction in the form of taxes for land owners entering into joint development agreements.
- Improve the legal and tax clarity of antiparochi transactions.
- Support the rejuvenation of inner cities, especially those with a high demand for residential accommodation
The removal of CGT significantly enhances the financial attractiveness of antiparochi compared to outright land sales for landowners.
In doing so, it also allows for smoother negotiations on the part of a developer and more predictable project structuring.
Antiparochi Real-Life Example-Cyprus
A land owner possesses land that is valued at € 400,000.
Prior to the reform:
- Antiparochi could also result in CGT upon transferring the land to a developer.
- Potential CGT liability: up to €80,000 20%
- This tax exposure often reduced the net benefit of the arrangement.
After the reform:
- The landowner transfers the land to a developer
- With this, they return two apartments on the completion of the work.
- Construction gets completed in 5 years.
- CGT payable: €0
The landowner receives new market-ready units at the point of land transfer, with no Capital Gains Tax, considerably improving the overall outcome of the deal.
Practical Consequences for Landowners and Developers
These are some of the roles that are specifically needed to be played by landowners:
- Antiparochi agreements, for example, should specify the construction timeline.
- Monitor project progress in order to safeguard the five-year requirement.
- Seek professional legal and tax advice before signing
Developers must:
- Be confident in the ability to deliver within the agreed timeframe.
- Structure projects realistically in such a way as not to jeopardize tax benefits for all parties.
- Communicate timelines transparently with landowners
Conclusion
The exemption of CGT for antiparochi arrangements represents a meaningful modernization of Cyprus property tax law. The reform is likely to unlock land value by taking a significant tax cost out of land exchange developments, stimulate new construction projects, and ultimately solidify collaboration between landowners and developers.
Professional advice, like all tax and property matters, is an essential ingredient to ensure complete compliance with new legislation.
Author: Property Canvas
ETEK Property Valuers, Registered and Licensed Real Estate AgencyProperty Canvas is a leading real estate agency in Cyprus, specializing in property sales, investment, and valuation. Our team comprises licensed estate agents and certified property valuers with extensive experience in the Cypriot market, providing expert guidance to buyers, sellers, and investors. Our Team has authored the “Capital Gains Tax Reform in Cyprus - Full CGT Exemption for Antiparochi Arrangements”.
